Starting An Innovation Lab? Avoid These Pitfalls

If you work for a big, established company, you’ve probably been noticing the sudden rise of a new trend: the innovation lab. Companies as diverse as Delta Air Lines, Target, Google, Pfizer, Marriott, Autodesk, Fidelity Investments, Ford, Verizon, and Stanley Black & Decker are jumping on the bandwagon.

Often, it appears, companies are seeing the need to showcase how innovative they are. And the solution seems to be to build a flashy new work environment, install bean bags, foosball tables, whiteboards, and cold-brew some coffee and voila, we’ve got ourselves a lab.

I’m a bit of a skeptic about these labs. It turns out so is Scott Kirsner, editor and co-founder of Innovation Leader, the Boston-based information provider that assists large companies in innovating faster, smarter, and cheaper. Innovation Leader regularly tours executives inside these labs, as part of their Field Study series. In fact, the next Field Study happens in Los Angeles next month. Along the way, Scott has been researching the traits of highly successful labs – and the pitfalls to avoid when building them. I recently sat down with him to check in on what he’s finding.

Innovation LabCourtesy Innovation Leader

Robert Tucker: So Scott, first of all, what’s the difference between an innovation lab and an innovation center? I was in China recently and visited Ten Cent’s innovation center. It was a cool way for them to showcase some of their new products, and their vision of what’s ahead. Is there a difference in the two?

Scott Kirsner: We see people calling them “centers,” “labs,” and even “studios,” but generally there isn’t a difference. It’s a new kind of physical environment that companies create, and generally the mission is to serve as a focal point for innovation programs and activities.

Many of the first iterations of innovation labs that we saw in the early days of Innovation Leader were basically “showcase” labs. The spaces were designed to show off cool stuff the company had prototyped, and were places to have meetings or bring in visiting executives or customers. While these spaces can be a nice way to communicate capabilities to customers, prospects and business partners, they also have a lifespan.

Tucker: And it’s short, right. What are some examples of this?

Kirsner: Well Humana, the healthcare giant, had a showcase on the 10th floor of their Louisville headquarters, where they had demonstration areas and kiosks, and it was cool. But they spent a lot of time giving tours rather than building stuff. They shuttered it a couple years ago. As the Humana team told us in 2015; showcase labs can quickly become a high-profile target when cost cuts happen, or the strategy shifts. They’re just not seen as delivering enough value. On the other hand, Visa’s innovation center in San Francisco is a good example of a lab that has demos about the future of payment, yet they also bring in customers to collaborate and co-create and map out that future together.

Tucker: So it’s possible to be a PR demo center, and also get real work done? Cap-Gemini’s research on the innovation lab phenomenon indicated that this desire to “get closer to customer needs” that seems to be driving a lot of companies to build one in the first place. What are the pitfalls to avoid when it comes to building a lab that's not a flash in the pan?

Kirsner: The big thing to ask yourself is: are we simply putting on ‘tech company’ clothes and trying to look more like a startup? With no real strategy, no plan for what to do inside the lab on a daily basis, and no strong ties to the business units, we see a lot of these labs lasting for two or three years. Then the shine wears off, and everyone realizes that nothing came out of it.

Verizon Innovation LabCourtesy Innovation Leader

Tucker: How do these labs align with the overall corporate strategy?

Kirsner: The best ones are trying to do some kind of exploratory work in service of the overall strategy. They may be at a service company that is very paper-based and call center based, and trying to understand how to be more digital. Or a product company trying to explore service-based business models. Or simply a company with really slow product development cycles that wants to understand “lean startup” or other methodologies to get ideas in front of customers more quickly.

But in general, the really successful innovation labs are ones that are the tied to a strategic imperative, rather than just creating a cool space and holding meetings or training sessions in it. Johnson & Johnson’s innovation centers, for example, were created to fulfill a specific, identified need within the organization: Connect the company’s business units with external innovations in the startup and academic world that meet specific criteria. J&J even rotates key business unit and functional leaders into their innovation centers, which enables them to bring their expertise to bear. This kind of thing encourages information sharing, gets leaders closer to the action, and ensures that investments have built-in support within the business units. And they set up these centers in geographies that matter to the company, but where they hadn’t previously been active, like Cambridge, Mass. and Palo Alto, Calif. It’s really critical that your innovation lab deliver value to the corporate strategy, whatever that may be.

Tucker: How should a lab be tied to the core business? Do they need to be a “skunkworks” with their own building far from headquarters, or does distance detract?

Kirsner: Typically, innovation labs that are closely tied to the core business are best for incremental or adjacent innovations. And labs that are a bit distant or separate from the core business are best for pursuing truly disruptive innovations. Fidelity Labs, for example, is closely tied to the core business — both physically and strategically — and is appropriately focused on incremental or adjacent innovations that are directly tied to the financial lives of Fidelity’s customers, and how they’re going to invest in the future. Lowe’s Innovation Labs, by contrast, is really thinking about the future of retail and how their customers are going to think about home renovation and repair in 10 years, and how they’ll want to buy products and services related to that. So they have labs in Seattle, San Francisco, and Bangalore — the headquarters are in North Carolina — and they’re not worried about how to cut two percent off the stores’ heating costs next quarter.

Tucker: Distance from the parent company is always a struggle for companies to assess.

Kirsner: Right. I mean the innovation labs we’ve seen fail here are typically too close, or too far, from the parent company, based on their strategy. The innovation lab of a $15 billion global retailer, for example, was shuttered after management clashed over this distance issue; the Chief Innovation Officer wanted to work on “Horizon three” or disruptive innovations, but the lab was tethered to business units that were expecting ideas they could deploy this year.

So make sure there’s clarity on focus and distance: If you’re working on disruptive innovations, then get away from the core business (but be sure you have the funding commitment to give you a long enough lifespan). And if you’re working on incremental or adjacent innovations, then step closer, and make sure you’ve got business-unit buy-in and support.

Tucker: How are these labs similar to the R&D labs of the past? How are they different?

Kirsner: The 20th century approach to innovation and R&D was typically to develop isolated, closed-door labs that were secretive, well-funded, and impermeable. Think of a castle surrounded by a moat. Often focused on theoretical research that yielded patents (but not always products or profits), these R&D labs were best exemplified by places like Xerox PARC in Silicon Valley, General Motors’ Technical Center, Bell Labs, and others.

And while some companies do remain secretive when it comes to R&D (Apple and Amazon come to mind here), most companies have begun taking a new, open approach to innovation when they open innovation labs.

This shift away from the hermit-like “Everything Must Be Invented Here” approach has yielded a more permeable 21st century corporation — one that interacts more openly with startups, entrepreneurs, accelerators, academic researchers, and even nonprofits and government agencies.

Some of the most successful approaches we’ve seen employ a more open innovation framework, whether it’s the FirstBuild makerspace in Louisville (originally set up by GE Appliance), or the Barclay’s “Rise” accelerator in New York City. Both labs are located away from the corporate headquarters, and are premised on working more closely with the innovation ecosystem in each city.

We’re even seeing the most conservative, closed-off R&D organizations in the world — including military contractors and aerospace & defense giants — begin to open their doors to the broader ecosystems. As PepsiCo Vice Chairman and Chief Scientific Officer Mehmood Kahn told us, “In the past, discovery was about something that you discovered in your own lab. In today’s world, discovery is about discovering ideas, no matter where they are, inside or outside.” A lot of the labs we’re visiting in our Los Angeles Field Study next month fit that model, whether Northrop Grumman’s or CBRE’s.

So don’t be isolated and open doors, and develop programs that leverage the innovations within your company’s broader ecosystem. That’s great advice for lab developers. Talk about the people who run these labs. I imagine some of them are hired from outside the organization, and some are promoted from within? What works best?

We’re seeing both happen. But we’ve found that strong, personal ties between executives can be the most important criteria for success, which can favor people with a few years of experience at the company, versus the newcomer hired from the startup or tech world.

It helps to have personal relationships that can be leveraged for success. These relationships are often built on decades of trust, during which executives worked together on myriad initiatives. The SVP and Head of Innovation and Ventures at New York Life, for example, had spent nearly two decades at the company, establishing trust and relationships in finance, sales, legal, strategy, and M&A that he can now leverage in his innovation role.

On the contrary, the innovation labs we’ve seen flounder or restructure have often been led by executives brought in from the outside — the “cool kid from Silicon Valley.” Those executives often exacerbate the “Not Invented Here” syndrome that you see when a lab tries to hand things over to a business unit. You see communication breakdowns and pilots projects that go nowhere.

Tucker: Sounds like relationships are fundamental to success.

Kirsner: Relationships matter tremendously, no question. I would urge practitioners to make sure your innovation lab is led by someone who is known, trusted, respected, and deeply connected to others in the building. Or someone who can build that trust and those connections, fast.

Tucker: That’s great advice, Scott. Tell us a little bit more about the labs you’ll visit in December when you bring your Field Study to Los Angeles, where I’m based. Who will you be visiting and what’s the value of these visits to your participants?

Kirsner: This is the first time we’ve been to L.A. for our Field Study series. (We’ve done previous ones in San Francisco, Seattle, New York, Boston, Atlanta, and other places.) While a lot of outsiders think of L.A. as simply the entertainment capital of the world, there’s a really interesting mix of innovation happening there in the startup and Fortune 500 worlds across lots of industries. So we’re taking participants to the Los Angeles Cleantech Incubator, which is home to energy and sustainability startups; the headquarters of the commercial real estate firm CBRE, which is thinking about the way office space supports a more creative and nimble corporate culture; JibJab, a digital media studio that was really one of the first creators of “viral” video content on the web; the aerospace and defense giant Northrop Grumman, which has a “FabLab” makerspace where employees can prototype all sorts of new concepts; and The Platform, a new kind of retail environment that is definitely not the shopping mall you grew up with.

Tucker: What’s the value?

Kirsner: It’s a chance for our participants — who are all corporate innovation, strategy, and R&D execs — to get a look at what other companies are doing to foster innovation and lay the foundation for future growth. And we also hold small group conversations throughout the event so that these leaders can learn from one another and talk in an “off the record” way about some of the challenges they’re facing. We hold ourselves to a pretty high standard with these events. Since we have the word “innovation” in our name, we always try to innovate, see new things, and make our Field Studies interactive and engaging in different ways every time we do one.

Robert B. Tucker is a keynote speaker and consultant to over 200 of the Fortune 500. He's written seven bestselling books on innovation, including the latest, Innovation is Everybody's Business.

I’m president of Innovation Resource Consulting Group, based in Santa Barbara, California, and an internationally recognized thought leader in the field of innovation and leadership development. I help organizations seeking to improve top and bottom line performance via what...